Southern Cross Media (SXL)

CIMB has maintained its “neutral" on
Southern Cross Media
following media speculation about a possible merger with Nine Entertainment Co.

The broker says while it sees potential upside from a merger it does not expect a big takeover premium because of the strong run on Southern Cross Media’s stock. Shares in the television and radio group have increased by 50 per cent in the year to date. CIMB cautions against buying on speculation of a merger. “If there is a merger we would expect an opportunity to buy into a combined SXL/Nine at IPO."

But it does note benefits from the deal: “We estimate Nine/Southern Cross could generate an additional $50 million [earnings before interest, tax, depreciation and amortisation] from switching affiliations and from cost savings from combining metro and regional TV. We estimate this would be worth $400 million (based on a multiple of 8 times EBITDA) and could be shared by Nine and SXL shareholders."

The broker forecasts earnings per share of 13¢ in fiscal 2013 and 14¢ in fiscal 2014. Southern Cross Media achieved EPS of 14¢ in fiscal 2012.